TIDMRB.
RNS Number : 8209L
Reckitt Benckiser Group PLC
24 July 2017
24 July 2017
SIGNIFICANT PROGRESS ON PORTFOLIO TRANSFORMATION
Results at a glance Q2 % change % change HY % change % change
(unaudited) GBPm actual constant GBPm actual constant
exchange exchange exchange exchange
Continuing operations*
Net revenue 2,479 14% 3% 5,017 14% 2%
- Like-for-like
growth** -2% -1%
Operating profit
- reported 1,063 50% 27%
Operating profit
- adjusted*** 1,190 16% 1%
Net income - reported 777 61% 34%
Net income - adjusted*** 888 14% -1%
EPS (diluted)
- reported 109.3 62%
EPS (diluted)
- adjusted*** 124.9 15%
Total operations (including discontinued operations)
Net income - reported 505 -4% -20%
Net income - adjusted**** 934 14% -1%
EPS (diluted)
- reported 71.0 -3%
EPS (diluted)
- adjusted**** 131.4 15%
--------------------------- ------ ---------- ---------- ------ ---------- ----------
Notes:
* Continuing operations includes Mead Johnson Nutrition ("MJN")
since its acquisition on 15 June 2017 and excludes RB Food and the
charge related to the previously demerged RB Pharmaceuticals
business that became Indivior. Both RB Food and the previously
demerged RB Pharmaceuticals business are presented as discontinued
operations. Net income from discontinued operations is presented as
a single line item in the Group income statement. Comparative
figures have been restated to exclude discontinued operations.
** Like-for-like ("LFL") growth excludes the impact of changes
in exchange rates, acquisitions, disposals and discontinued
operations.
*** Continuing adjusted results excludes adjusting items of
GBP127 million in operating profit and GBP23 million of adjusting
items in net finance costs, as well as their associated tax impacts
(refer to Note 5).
**** Total adjusted results excludes adjusting items for both
continuing and discontinued businesses of GBP429 million (HY 2016:
GBP296 million). Refer to the reconciliations of total reported
results to adjusted results in Basis of Presentation and Non-GAAP
Measures (Note 5).
Highlights: Half Year (HY) and continuing unless otherwise
stated
-- Significant progress on our portfolio transformation:
o Mead Johnson Nutrition (MJN) acquired on 15 June, earlier than
expectations and integration progressing well.
o Food disposal announced. Proceeds to be used to reduce
debt.
o RB base business on track in a challenging environment.
-- LFL net revenue decline of -1% (Q2: -2%) - in line with our
announcement on 6 July. (specific issues: Scholl, Korea, GST and
cyber-attack)
-- ENA (-3% LFL) and DvM (+3% LFL growth) - impacted by specific
issues in challenging market conditions.
-- Health (-2% LFL) - continuing strong dynamics offset by
specific issues. Hygiene (+1% LFL growth), Home (-3% LFL).
-- Adjusted operating margin expansion of +30bps to 23.7%, (ex MJN: +50bps to 23.9%).
-- Adjusted net income growth of +14% (-1% at constant rates);
adjusted diluted EPS of 124.9p (+15%).
-- Adjusting items of GBP127m principally in respect of the MJN acquisition.
-- GBP318m provision in respect of Indivior / DoJ discussions
taken within discontinued operations. Further details on p15,
26.
-- Reported net income increased by +61% (+34% constant);
reported diluted EPS of 109.3p (+62%).
-- Strong free cash flow generation of GBP1,251m. Further details on p13.
-- Full year net revenue target adjusted to +2% (previously +3%)
as previously announced. MJN net revenue target for H2 of -2% to
flat.
-- The Board declares an interim dividend of 66.6p per share
(2016: 58.2p), an increase of 14%.
Commenting on these results, Rakesh Kapoor, Chief Executive
Officer, said:
"In the first half of the year, we have made significant
progress on portfolio transformation and becoming a more focused
consumer health and hygiene business, with both the acquisition of
Mead Johnson Nutrition, and the agreed sale of our Food
business.
We completed the acquisition of Mead Johnson Nutrition a quarter
earlier than expected. Our integration team have done an excellent
job in anticipating an earlier close such that we are now targeting
accelerated phasing of our cost synergies. The strategic review of
our Food division has been completed, culminating in the agreed
sale of this high quality business.
From an operational perspective, as expected we had a tough
first half, with challenging conditions exacerbated by a
sophisticated cyber-attack. Notwithstanding this, the business
remains strong and our earnings model intact. We saw broad-based
growth across the majority of our consumer health brands. We
continue to innovate strongly across our Hygiene segment with good
success, and Home (ex-Korea) continues to perform in line with our
expectations.
I expect the RB business to return to growth progressively over
the second half of the year. As set out in our statement of 6 July,
we are targeting full year net revenue +2% LFL growth** for the RB
base business. I see this as a challenging target. We are
experiencing tough market conditions, and we still have work to do
on addressing the full implications of the recent cyber-attack.
Operating margin continues to make satisfactory progress and we
reiterate our medium-term target of moderate expansion.
For Mead Johnson Nutrition, we target -2% to flat LFL net
revenue growth in H2. Operating margin prior to closing was
slightly weaker than initially expected. We see significant
opportunity within the business and remain confident that operating
margin expansion over the medium term will be in line with our
plan.
There is no doubt that despite the operational issues RB is
becoming a better, stronger company. The strategic transformation
enabled by the recent acquisition of Mead Johnson Nutrition and
disposal of Food will position RB well to deliver superior
shareholder returns for years to come."
Basis of Presentation and Non-GAAP Measures
Throughout the Interim Report, certain measures are used to
describe RB's financial performance which are not recognised under
IFRS. The Executive Committee of the Group assesses the performance
of the operating segments based on net revenue and adjusted
operating profit, which excludes the effect of adjusting items.
Management believes that the use of adjusted measures such as
adjusted operating profit, adjusted net income and adjusted
earnings per share provide additional useful information about
underlying trends to Shareholders.
Non-GAAP measures:
Like-for-Like (LFL) growth on Net Revenue excludes the impact of
changes in exchange rates, acquisitions, disposals and discontinued
operations. A reconciliation of LFL to reported net revenue growth
by operating segment is shown on page 5 and by category on page
7.
Constant exchange rate adjusts the actual consolidated results
such that the foreign currency conversion applied is made using the
same exchange rates as was applied in the prior year.
As described in Note 5, the Group has refined its accounting
policy in respect of its adjusted earnings measures as a
consequence of the acquisition of Mead Johnson Nutrition. Adjusting
items now include the amortisation of acquired, finite-life
intangible assets as well as exceptional items previously
included.
The table below provides a reconciliation of the Group's
reported statutory earnings measures to its adjusted measures for
the six months ended 30 June 2017. Descriptions of the adjusting
items are included in Note 5.
Adjusting: Adjusting: Adjusted
Six months ended 30 June Exceptional Other
2017 Reported items items
GBPm GBPm GBPm GBPm
--------------------------------- --------- ------------- ----------- ---------
Operating profit 1,063 123 4 1,190
Net finance expense (47) 23 - (24)
--------------------------------- --------- ------------- ----------- ---------
Profit before income tax 1,016 146 4 1,166
Income tax expense (232) (39) - (271)
--------------------------------- --------- ------------- ----------- ---------
Net income for the period
from continuing operations 784 107 4 895
Attributable to non-controlling
interests (7) - - (7)
--------------------------------- --------- ------------- ----------- ---------
Net income for the period
attributable to owners of
the parent (continuing) 777 107 4 888
Net income for the period
from discontinued operations (272) 318 - 46
--------------------------------- --------- ------------- ----------- ---------
Total net income for the
period attributable to owners
of the parent 505 425 4 934
================================= ========= ============= =========== =========
In addition to the breakdown of adjusting items detailed in Note
5, a reconciliation of Adjusted Net Income is given in Note 7,
which is used in the calculation of Adjusted EPS.
Adjusted Earnings per share is defined as Adjusted Net Income
attributable to owners of the parent divided by weighted average of
ordinary shares (refer to Note 7).
The Group's principal measure of cash flow is Free cash flow,
which is defined as net cash generated from operating activities
less net capital expenditure. A reconciliation of cash generated
from operations to Free cash flow is shown on page 13.
Other measures and terms:
Actual exchange rates show the statutory performance and
position of the Group, which consolidates the results of foreign
currency transactions at period end closing rates (Balance Sheet)
or average rates (Income Statement).
BEI represents our Brand Equity Investment and is the marketing
support designed to capture the voice, mind and heart of our
consumers.
Project Fuel
Project Fuel is our ongoing cost optimisation programme within
cost of goods sold ("COGS").
Detailed Operating Review: Total Group (continuing
operations)
---------------------------------------------------
Group
Note: This section describes our continuing operations. It
therefore excludes commentary in respect of our Food business and
the exceptional charge relating to RB Pharmaceuticals (also
discontinued), but includes two weeks of MJN as the acquisition
completed on 15 June. Commentary on discontinued operations is set
out on p14.
Half year ("HY") 2017
HY net revenue was GBP5,017m, a LFL decrease of -1%. Mead
Johnson Nutrition ("MJN") was acquired on 15 June and half a month
of trading has been consolidated within the RB Group results. This
combined with the Hypermarcas acquisition from last year added
approximately GBP140m in Net Revenue for the period, taking total
constant growth for the continuing business to +2%. The weakening
of the pound versus many currencies added a further +12% to growth,
taking the total reported growth to +14%.
ENA net revenue declined by -3% on a LFL basis, with North
America flat and "Rest of ENA" -5%. Weakness was primarily driven
by the known issue of Scholl / Amopé Wet & Dry Express Pedi
launch in 2016, which failed to meet our expectations, and the
recent, cyber-attack on 27 June (refer p11 for further details on
this issue). Russia showed an improved performance, returning to
growth in the half. DvM grew at +3% on a LFL basis against a
backdrop of continued mixed market conditions. Volatility has been
seen in India, particularly in Q2 as many customers delayed their
orders due to the implementation of GST (refer to details on p7).
China remained strong, as did parts of Africa.
The issues noted above have impacted category growth rates also.
Most of our powerbrands in Health grew well. However, this growth
was more than offset by Scholl / Amopé decline and the cyber-attack
halting production, shipping and invoicing in a number of sites
across Europe shortly before the close of the half. For these
reasons, LFL growth reported in the half was -2% despite
broad-based growth and strong performance across much of our
consumer health portfolio. Hygiene grew at +1% LFL led by Dettol
and Harpic in our emerging markets, and Veet across both developed
and emerging markets. Home declined -3% LFL due to a combination of
Vanish declines in Korea and weakness of Air Wick in the US.
HY gross margin increased by +10bps to 60.4%. Innovation-led mix
improvement and Project Fuel initiatives were offset by input cost
headwinds.
We remain committed to investing in the long-term growth of our
brands and in HY 2017 we invested 14.9% of our net revenue in brand
equity investment ("BEI"). This represents -40bps decline versus
the prior year (actual rates) and an absolute decline of GBP26m
(constant) for our base RB business. Investment behind most brands
increased in the half with the exception of Scholl / Amopé where we
reduced investment behind the Wet & Dry Express pedi.
Overhead costs remained relatively stable in HY, with a small
reduction in the RB base business offset by a higher fixed cost
base in the MJN business.
Operating profit was GBP1,063m, +50% versus HY 2016 (+27%
constant). The reported performance was positively impacted by a
net reduction in adjusting items of GBP192m to GBP127m (HY 2016:
GBP319m). These items largely relate to the acquisition of MJN (HY
2016: costs associated with the HS issue in Korea). A more detailed
description of the adjusting items is set out on pages 26-28 of
this report. On an adjusted basis, operating profit was up +16%
(+1% constant) to GBP1,190m. The adjusted operating margin
increased +30bps to 23.7%. Excluding MJN, adjusted operating margin
increased by +50bps.
Net finance expense was GBP47m (HY 2016: GBP11m), reflecting the
cost of increased net debt required to finance the acquisition of
MJN. The underlying tax rate was 23% (HY 2016: 23%). The effective
tax rate is 23% (HY 2016: 30%), in the prior period the difference
driven by tax on adjusting items.
Net income attributable to owners of the parent (as reported)
was GBP777m, an increase of 61% versus HY 2016 (+34% constant),
impacted by exceptional items. On an adjusted basis, net income
grew +14% at actual exchange rates, and declined by -1% on a
constant basis. Diluted earnings per share of 109.3 pence +62% on a
reported basis; on an adjusted basis, +15% to 124.9 pence.
Second quarter ("Q2") 2017
Total Q2 net revenue was GBP2,479m, a LFL decrease of -2%. Total
growth at constant rates was +3% due to the additive impact of the
MJN and Hypermarcas acquisitions, and a positive translational FX
impact of +11% drove total reported growth at actual rates of
+14%.
ENA (-4% LFL) saw a resilient performance from North America
(flat LFL) and a weak quarter from the rest of ENA (-6% LFL).
Western Europe was impacted by a combination of slower market
growth, a decline in the Scholl brand across many markets, and
delays in shipping and invoicing due to the cyber-attack which
occurred on 27 June. Russia / CIS had a good quarter of growth,
although the market remains fragile.
DvM grew by +2% in the quarter on a LFL basis with strong
performances from China, South Africa, Nigeria and Pakistan. Growth
was impacted by India, which declined in the quarter due to some
customers delaying orders ahead of the implementation of GST on 1
July. The issues in South Korea also impacted trading in the
quarter, albeit to a lesser extent than Q1. The underlying
performance of our DvM business remains strong.
On a category basis Health was weak at -4% LFL in the quarter.
Whilst we continued to see strong growth in Durex and Mucinex, a
number of Western European weighted brands were impacted by the
cyber-attack and Scholl continued to be weak. Hygiene growth was
-1% LFL decline, with a slowdown in Dettol in India and weak pest
(lapping the outbreak of the Zika virus) more than offsetting
strong growth in Veet and Harpic in DvM. Vanish and a number of
local laundry detergent brands are a significant part of the South
Korean portfolio, which impacted the performance in Home and
portfolio brands.
HY 2017 Business Review (continuing operations)
Summary: % net revenue growth by Operating Segment
Q2 H1
-------------------- ------------------------------ ------------------------------
LFL Net FX Reported LFL Net FX Reported
M&A* M&A*
-------------------- ---- ------ ----- --------- ---- ------ ----- ---------
North America - - +12% +12% - - +14% +14%
-------------------- ---- ------ ----- --------- ---- ------ ----- ---------
Rest of ENA -6% - +9% +3% -5% - +11% +6%
-------------------- ---- ------ ----- --------- ---- ------ ----- ---------
ENA -4% - +10% +6% -3% - +12% +9%
-------------------- ---- ------ ----- --------- ---- ------ ----- ---------
DvM +2% +1% +11% +13% +3% +1% +13% +17%
-------------------- ---- ------ ----- --------- ---- ------ ----- ---------
IFCN** N/A N/A N/A N/A N/A N/A N/A N/A
-------------------- ---- ------ ----- --------- ---- ------ ----- ---------
Group - continuing
operations -2% +5% +11% +14% -1% +3% +13% +14%
-------------------- ---- ------ ----- --------- ---- ------ ----- ---------
* Reflects the impact of acquisitions and disposals within
continuing operations
** IFCN is the Infant Formula and Child Nutrition operating
segment (the acquired MJN business)
Note: due to rounding, this table will not always cast
Analysis of net revenue and adjusted operating profit by
operating segment, and of net revenue by category are set out
below. The Executive Committee of the Group assesses the
performance of the operating segments based on net revenue and
adjusted operating profit. This measurement basis excludes the
effect of adjusting items.
Review by Operating Segment - continuing operations
Quarter ended Half Year ended
30 June 30 June
2016** % change 2016** % change
2017 (restated) exch. rates 2017 (restated) exch. rates
GBPm GBPm Actual const. GBPm GBPm actual const.
Total Net revenue
562 502 +12% 0% North America 1,193 1,048 +14% 0%
958 931 +3% -6% Rest of ENA 1,996 1,881 +6% -5%
------- -------------- ------- ------- ------------------ ------- -------------- ------- -------
1,520 1,433 +6% -4% ENA 3,189 2,929 +9% -3%
833 738 +13% +2% DvM 1,702 1,457 +17% +4%
126 - IFCN* 126 -
2,479 2,171 +14% +3% Total 5,017 4,386 +14% +2%
------- -------------- ------- ------- ------------------ ------- -------------- ------- -------
Operating profit
ENA 827 740 +12% -2%
DvM 344 287 +20% +4%
IFCN* 19 -
Operating profit - adjusted*** 1,190 1,027 +16% +1%
Adjusting items (127) (319)
Total Operating profit 1,063 708 +50% +27%
-------------------------------- ------ ----------- ----- -----
Operating margin - adjusted*** % %
ENA 25.9 25.3 +60bps
DvM 20.2 19.7 +50bps
IFCN* 15.1 -
Total 23.7 23.4 +30bps
-------------------------------- ----- ------------ -------
* IFCN is the Infant Formula and Child Nutrition operating
segment (comprising solely of the entire MJN business)
** Restated to exclude discontinued operations.
*** Adjusted to exclude the impact of adjusting items.
The Business Review below is given at constant exchange
rates.
ENA 64% of Net Revenue
HY 2017 total net revenue was GBP3,189m, with LFL performance of
-3%.
North America performance was resilient, net revenue was flat
versus the prior year supported by Mucinex growth but offset by
declines in the Amopé franchise and continued market challenges in
Air Wick
In the rest of ENA performance in Russia was strong particularly
in Durex and in Nurofen. Across Europe market conditions remain
challenging. The impact of the cyber-attack in the run up to our
half year end was felt most strongly in our European markets and
these markets have been significantly impacted by the decline in
Scholl as we continue to lap the strong sell in of our Wet &
Dry initiative in H1 2016.
HY Adjusted Operating Profit decreased -2% (constant) to
GBP827m; the adjusted operating margin increased by +60bps to 25.9%
driven by gross margin expansion and BEI savings from reduced
spending on Scholl / Amopé.
Q2 total net revenue was GBP1,520m, with LFL performance of -4%.
The recent cyber-attack impeded our ability to ship and invoice
orders in the days leading up to half year and Scholl / Amopé
declines continued to have an impact. Russian performance in Q2 was
encouraging.
DvM 34% of Net Revenue
HY 2017 total net revenue was GBP1,702m, with LFL growth of
+3%.
The underlying performance in India business remains strong and
in growth for the half year but has been negatively impacted by
demonetisation and, to a greater extent, destocking by our
customers in the lead up to GST changes introduced on 1 July
2017.
Our Africa region saw strong and broad growth across our
portfolio, with some weakness in Middle East, particularly Saudi.
In China we continued to see strong growth primarily in Durex and
particularly through growth in online sales channels. We also saw a
boost from the growth of Move Free.
Elsewhere in DvM market conditions remain challenging including
in Brazil, which also benefitted in the prior year comparative from
increased demand for pest products resulting from the Zika virus.
The integration of the Jontex and Olla brands following the
acquisition which completed in Q4 2016 has given us a leading
market position in the Sexual Wellbeing category.
HY Adjusted Operating Profit increased +4% (constant) to
GBP344m; the adjusted operating margin increased by +50bps to
20.2%.
Q2 total net revenue was GBP833m, with LFL performance of +2%.
The remaining impact from HS in Korea was supplemented by the
shipping losses of the cyber-attack and the de-stocking by
customers in India in relation to GST.
The Indian Government implemented a Goods and Service Tax (GST)
from 1 July 2017. The GST will be deducted from the sales value
invoiced to customers and replaces the multiple taxes previously
levied through the supply chain and accounted for in cost of sales.
The full year accounting impact of the move to GST is expected to
be a reduction of c.GBP50m in Net Revenue - which, as previously
flagged, we will adjust for in our LFL net revenue reporting. The
ongoing impact on profit is expected to be small.
Infant Formula and 2% of Net Revenue
Child Nutrition
HY 2017 total net revenue was GBP126m for the period between
completion of the acquisition on 15 June and 30 June.
HY 2017 Category Review (continuing operations)
Summary: % net revenue growth by Category
Q2 H1
-------------------- ------------------------------ -------------------------------
LFL Net FX Reported LFL Net FX Reported
M&A* M&A*
-------------------- ---- ------ ----- --------- ----- ------ ----- ---------
Health** -4% +16% +12% +25% -2% +8% +13% +20%
-------------------- ---- ------ ----- --------- ----- ------ ----- ---------
Hygiene -1% - +10% +10% +1% - +13% +14%
-------------------- ---- ------ ----- --------- ----- ------ ----- ---------
Home -2% - +10% +8% -3% - +12% +9%
-------------------- ---- ------ ----- --------- ----- ------ ----- ---------
Portfolio
Brands*** -8% - +12% +3% -15% - +10% -4%
-------------------- ---- ------ ----- --------- ----- ------ ----- ---------
Group - continuing
operations -2% +5% +11% +14% -1% +3% +13% +14%
-------------------- ---- ------ ----- --------- ----- ------ ----- ---------
* Reflects the impact of acquisitions and disposals within
continuing operations
** Health now includes the Infant Formula and Child Nutrition
(IFCN) business.
*** 2016 Portfolio Brands has been restated to exclude RB Food,
which is a discontinued operation.
Note: due to rounding, this table will not always cast.
Quarter ended Half Year ended
30 June 30 June
2017 2016 % change 2017 2016 % change
GBPm GBPm exch. Rates GBPm GBPm exch. Rates
actual const. actual const.
Net revenue by category
893 715 +25% +13% Health 1,797 1,501 +20% +6%
1,072 978 +10% -1% Hygiene 2,196 1,934 +14% +1%
454 420 +8% -2% Home 912 834 +9% -3%
60 58 +3% -8% Portfolio Brands* 112 117 -4% -15%
2,479 2,171 +14% +3% Total 5,017 4,386 +14% +2%
------ ------ ------- ------- ------------------------ ------ ------ ------- -------
* Health now includes the Infant Formula and Child Nutrition
(IFCN) business.
** 2016 Portfolio Brands has been restated to exclude RB Food,
which is a discontinued operation.
In the following Category Review, growth rates are given at
constant exchange rates. Margins are at actual rates.
Health 36% of Net Revenue
HY 2017 total net revenue was GBP1,797m, with LFL performance of
-2%.
A strong underlying performance across our Health categories
offset by the lapping of strong sell-in of Scholl/Amopé in the
prior period.
Mucinex delivered strong growth both as a result of the
increased incidence of cold and flu this year and our Cool &
Clear innovation. Our GI relief products had good growth
particularly Gaviscon in Turkey and Picot in Mexico.
Our Durex Powerbrand grew strongly, driven by our 'Invisible'
range. Durex growth is particularly strong in China and Russia but
we also saw good growth in European markets.
Q2 2017 total net revenue was GBP893m, with LFL performance of
-4%. Scholl/Amopé declines continued to have an impact on growth
and cyber-attack issues at the very end of the quarter contributed
to the decline.
Hygiene 44% of Net Revenue
HY 2017 total net revenue was GBP2,196m, with LFL growth of
+1%.
Growth continues to be led by our Hygiene Health brand of Dettol
particularly across DvM including the successful launch of Dettol
Deep Cleanse soap. Harpic also saw strong growth in emerging
markets such as India where penetration continues to benefit from
our involvement in the Banega Swachh campaign
Innovation has helped drive success in Veet with the continued
strong performance of our recently launched Sensitive Precision
Hair Trimmer, in particular in ENA markets. Finish grew in the HY
helped by a Quantum relaunch and penetration-led growth in emerging
markets.
Pest category declines were a result of lapping the strong
performance due to the Zika virus in 2016.
Q2 total net revenue was GBP1,072m with LFL performance of -1%.
The significant de-stocking by customers in India in relation to
GST was felt most strongly in Hygiene and the cyber-attack at the
end of Q2 also contributed to Hygiene declines in the Quarter.
Home 18% of Net Revenue
HY 2017 total net revenue was GBP912m, with LFL performance of
-3%.
Vanish declines were predominantly driven by the Korea HS issue
but DvM outside of Korea showed good growth particularly from
Brazil, and in Turkey behind innovative new products such as Vanish
Gold. Within ENA our growth in the UK was a result of our recently
launched Platinum powder and gel innovation but in the US
competitive pressure led to a decline in the period.
Challenging market conditions in the US also contributed to
declines in Air Wick but revenue in the Rest of ENA grew in H1
helped by the recent innovation which extended our Pure range of
aerosols to Freshmatic. The Pure aerosol range helped deliver good
performance in DvM, particularly in Brazil and Mexico.
Q2 total net revenue was GBP454m with LFL performance of -2%.
Air Wick performance in DvM was encouraging with strong growth in
Brazil, Turkey and Mexico. The Korea HS issue had a lower impact
than in Q1 but the cyber-attack at the very end of the quarter
reduced revenue to below expectations.
Portfolio Brands 2% of Net Revenue
(ex. Food)
HY 2017 total net revenue was GBP112m, with LFL performance of
-15%.
Portfolio Brands now exclude Food and mainly comprise Laundry
Detergents, Fabric Softeners and certain sales to institutional
customers. The nature of the brands and the route-to-market leads
to a high level of volatility in revenue. The Korea HS issue has
contributed significantly to the decline.
Q2 total net revenue was GBP60m with LFL performance of -8%.
Acquisition and Performance of Mead Johnson Nutrition
("MJN")
On the 15 June 2017, RB completed the acquisition of Mead
Johnson Nutrition ("MJN") for cash consideration of GBP13.0
billion. Taking into account MJN net debt, this transaction
increased the Group's net debt by GBP14.3 billion. Two weeks have
been consolidated into RB's group results in Q2 and H1.
In order to facilitate an understanding of the trends in the MJN
business we have disclosed net revenue on a pro-forma basis
consistent with the previously disclosed segments, and pro-forma
Non-GAAP EBIT for the total company.
Quarter ended Half Year ended
30 June 30 June
2017 2016 % change 2017 2016 % change
(pro-forma) (pro-forma) exch. rates (pro-forma) (pro-forma) exch. rates
$m $m actual const.* $m $m actual const.*
Total Net Revenue
450 456 -1% +2% Asia 884 957 -8% -5%
North America / Europe
305 319 -4% -4% (ENA) 598 620 -4% -3%
158 167 -5% -3% Latin America 315 327 -4% +1%
------------ ------------ ------- -------- ----------------------- ------------ ------------ -------- --------
913 942 -3% -1% Total 1,797 1,904 -6% -3%
Non-GAAP EBIT 357 474 -25% -19%
Non-GAAP EBIT margin 19.9% 24.9% -500bps
------------ ------------ ------- -------- ----------------------- ------------ ------------ -------- --------
*Constant growth has been calculated on an MJN 'constant dollar'
basis which excludes the impact of changes in foreign currency
exchange rates
Review of MJN's pro-forma results (at constant rates for H1
unless otherwise noted):
MJN net revenue declined by -3% in H1 comprising a -5% decline
in Q1 and a -1% decline in Q2.
Asia returned to growth in Q2 with a strong performance in
China, offset by declines in South Asian markets, most notably
Philippines. The macro trends in China, which we saw through our
due diligence process, continue as expected. Specialist retail and
e-commerce channels saw strong growth, as did MJN's premium
imported brands. Offline cross-border sales between Hong Kong and
China declined, as did locally manufactured products within the
Enfa range.
ENA, which is predominantly the US, declined by -4% in Q2 and
-3% in H1. The US business has taken steps to address market share
loss, through increased investment in consumer education and
reaching new mums. However, the H1 result was somewhat weaker than
expected.
LATAM saw a decline of -3% in Q2 and +1% in H1. This fragmented
region saw weakness in Argentina in Q2, and competitive pressures /
category weakness in Central America, somewhat offset by growth in
Mexico behind a new product launch.
Non-GAAP EBIT margins for the MJN business fell by -500bps to
19.9%. The decline was driven by a gross margin decline due to
increased commodity input costs, especially for full fat milk
powder, pricing corrections taken in a number of markets, and lower
margins for the growing channel in China. Advertising and promotion
costs increased due to additional investment behind brands,
especially China and USA. Fixed costs also increased as a
proportion of net revenue, largely as a result of negative
operational leverage.
Basis of Preparation of MJN's pro-forma results
The summary pro-forma financial information about MJN has been
extracted from its underlying accounting records, prepared in
accordance with US Generally Accepted Accounting Principles ("US
GAAP"). There are no differences between US GAAP and IFRS in
respect of Total Net Revenue. The Group's most comparable measure
to Non-GAAP EBIT used by MJN is Adjusted Operating Profit. Non-GAAP
EBIT excludes the impact of MJN's specified items, which
approximate the Group's adjusting items. MJN's constant exchange
rates eliminate the impact of both translational foreign exchange
and certain transactional exchange differences, whereas the Group's
constant exchange rate calculation does not adjust for
transactional foreign exchange.
New Product Initiatives
The H1 presentation will feature a selection of new product
initiatives for the second half of 2017:
In Health:
-- Scholl (R) value priced electronic foot file. Soft feet
effortlessly. More convenient than a manual foot file, offering a
visible difference
-- Durex (R) Naturals Intimate Gel - Water based lubricant -
uses 100% natural ingredients with pre-biotics that support natural
flora and pH balance
-- Digestive Advantage (R) Probiotic Bites Dark Chocolate - The
probiotic that survives stomach acid 100x better - now available in
great tasting dark chocolate bites
-- MegaRed (R) Advanced Triple Absorption - Absorbed by your
body 3x better than standard fish oil, so you can get more Omega-3
power from just one softgel
-- Mucinex(R) - new news on FastMax - Powerful multi-symptom
relief - One Dose addressing 9 Symptoms
In Hygiene:
-- SiTi(R) powered by Dettol(R) - a protective ecosystem against
air pollution - connected at the heart
-- Lysol(R) Disinfecting Wipes - Our best yet - new & improved wipe that kills 99.9% of germs
Also available in a new range of fragrances
-- Finish(R) - All-in-1 Compact tablets launch in China -
Tablets specifically designed for China and compact (table-top)
dishwashers
-- Veja(R) Gold - Re-launch across the range - Best ever Veja
formula with increased actives to provide 2x more cleaning power,
throughout the house
In Home:
-- VIPoo by Air Wick(R) - keep nasty smells in your bowl!
-- Vanish(R) Gold - new initiative - "whites instantly whiter
after one wash". There's nothing nicer than crisp whites when it
comes to shirts, linen and towels
Cyber-Attack
On Tuesday 27 June many companies, including RB, were impacted
by a new type of sophisticated cyber-attack. We believe the attack
was focused on companies that do business with the Ukraine.
Once activated, the virus was able to avoid many of the measures
in place to prevent its spread. As a consequence it rendered many
systems and servers, using a certain operating system, inoperable
very quickly.
Systems were recovered progressively from 3 July. By 11 July
most of our manufacturing sites were producing close to normal
capacity. There are, however, a number of activities which will
take until the end of August to complete in full and we continue to
face some operational disruption.
Key impacts have been reduced factory operations, delayed
shipping and invoicing, and in some circumstances, lost sales. We
believe we have materially quantified the impact of this
cyber-attack on our trading. The recovery is however ongoing.
RB has significant cyber security measures in place. With
attacks becoming ever more sophisticated in nature, we are
reviewing what further measures can be implemented to minimize both
the likelihood and potential impact of any future attacks.
The Humidifier Sanitiser ("HS") Issue in South Korea
There have been no material changes to our expectations
surrounding the tragic HS issue in South Korea since our Q1 trading
update in April.
- No additional assessments have been reported by the Government
since our Q1 trading update. The status to date is set out in the
table below:
- Following a consultation process with currently identified
Round 3 victims, Oxy RB has initiated a compensation plan for the
52 Oxy RB category I or II users identified in tranches 3.1 - 3.3.
The terms of this plan are broadly the same as Rounds 1 &
2.
- Round 4 remains open and the applicant numbers are reported on
the Korea Environmental Industry & Technology Institute (KEITI)
website. The number of applicants as at 17 July was 4,380.
The status of the four rounds of applications established to
date is therefore as follows:
Round Total Applicants Category Cat I&II RB Oxy Assessment
applicants Assessed I & II percentage users - completion
Category (expected)
I & II**
------ ------------ ----------- --------- ------------ ---------- ------------
1 361 361 172 48% 139 Completed
------ ------------ ----------- --------- ------------ ---------- ------------
2 169 169 51 30% 44 Completed
------ ------------ ----------- --------- ------------ ---------- ------------
3 752 452 57 13% 52 Dec 17
------ ------------ ----------- --------- ------------ ---------- ------------
3.1 165 35 21% 32
------ ------------ ----------- --------- ------------ ---------- ------------
3.2 188 19 10% 18
------ ------------ ----------- --------- ------------ ---------- ------------
3.3 99 3 3% 2
------ ------------ ----------- --------- ------------ ---------- ------------
4 4,380* 0 TBD TBD TBD Dec 17
------ ------------ ----------- --------- ------------ ---------- ------------
* Round 4 remains open to applicants. The number of applicants
shown in the table are the applicants set out on the KEITI website
as at 17 July 2017.
** both sole Oxy RB users and users of multiple manufacturers'
products, including Oxy RB.
In 2016 a provision was made for certain costs arising as a
result of the HS issue, including costs arising from compensating
Oxy HS category I and II victims classified within Rounds 1, 2 and
3 of the Korean Centre for Disease Control (KCDC) classification
process.
There are in addition a number of further costs / income
relating to the HS issue that are either not able to be estimated
or quantified or are considered not probable at the current time,
including those relating to Round 4 applicants and costs associated
with the wider HS issue. Further details of these contingent
liabilities are set out in note 13.
Financial Review
Basis of preparation. The unaudited financial information is
prepared in accordance with IAS 34 Interim Financial Reporting, and
with the accounting policies to be applied in the Group's
consolidated financial statements for the year ending 31 December
2017. These are not materially different from those set out in the
Group's 2016 Annual Report and Accounts, unless separately
disclosed. Unless otherwise stated, information contained herein is
in respect of continuing operations.
Net finance expense. Net finance expense is GBP47 million (2016:
GBP11 million), including GBP23m of accelerated finance fees
recorded as a direct result of the MJN acquisition which have been
treated as an exceptional adjusting item.
Tax. The continuing statutory effective tax rate is 23% (2016:
30%). The continuing adjusted effective tax rate is 23% (2016:
23%).
Net working capital Largely as a result of the MJN acquisition,
inventories increased to GBP1,322 million (2016: GBP752 million),
trade and other receivables increased to GBP1,846 million (2016:
GBP1,377 million) and trade and other payables increased to
GBP4,783 million (2016: GBP3,400 million). This has led to a
decrease in net working capital to minus GBP1,615 million (2016:
minus GBP1,271 million). Net working capital as a percentage of net
revenue is -16% (2016: -14%). On a pro-forma basis, excluding the
fair value adjustment made to inventory on acquisition and
including 12 months of net revenue for MJN, then NWC as a
percentage of net revenue would be -14%.
Cash flow. Cash generated from operations was GBP1,603 million
(2016: GBP1,389 million). The increase largely reflects the
operating performance and improved working capital position.
Free cash flow is the amount of cash generated from operating
activities after capital expenditure on property, plant and
equipment and intangible assets and any related disposals. Free
cash flow reflects cash flows that could be used for payment of
dividends, repayment of debt or to fund our strategic objectives.
Free cash flow conversion as a percentage of continuing adjusted
net income was 141% (2016: 114%).
30 June 30 June
2017 2016
GBPm GBPm
(restated)(1)
----------------------------------------- -------- ---------------
Cash generated from operations 1,603 1,389
Net Interest paid (35) (8)
Tax paid (227) (230)
Purchase of property, plant & equipment (91) (62)
Purchase of intangible assets (12) (198)
Proceeds from the sale of property,
plant & equipment 4 1
Proceeds from the sale of intangible 9 -
assets
------------------------------------------ -------- ---------------
Free cash flow 1,251 892
------------------------------------------ -------- ---------------
Net debt at the end of the half year was GBP14,751 million (31
December 2016: GBP1,391 million), an increase of GBP13,360 million.
This reflected the acquisition of MJN and the payment of the final
2016 dividend, offset by strong free cash flow generation. The
Group regularly reviews its banking arrangements and has adequate
facilities available.
Adjusting items. In HY 2017 pre-tax adjusting items of GBP127
million were recorded in operating profit (HY 2016: GBP319
million), relating primarily to the acquisition of Mead Johnson
Nutrition. Further details of these items can be found in Note 5 to
this report.
Discontinued operations: The results of the Food business are
reported as a discontinued operation. Food net income was GBP46
million. (HY 2016: GBP42 million). The adjusting item (see Note 5)
in respect of Indivior of GBP318 million (HY 2016: nil) is also
reported within discontinued operations.
Balance sheet. The acquisition of MJN resulted in an increase of
GBP17.3 billion to goodwill and intangible assets and an associated
deferred tax liability of GBP3.2 billion (see note 15). The Group
acquired MJN for cash consideration of GBP13.0 billion, which
together with the net debt acquired increased the Group's net debt
by GBP14.3 billion.
At 30 June 2017, the Group had shareholders' funds of GBP8,269
million (31 December 2016: GBP8,426 million), a decrease of 2%. Net
debt was GBP14,751 million (31 December 2016: GBP1,391 million) and
total capital employed in the business was GBP23,020 million (31
December 2016: GBP9,817 million).
This finances non-current assets of GBP32,165 million (31
December 2016: GBP14,569 million), of which GBP1,810 million (31
December 2016: GBP878 million) is property, plant and equipment,
the remainder being goodwill, other intangible assets, deferred
tax, retirement benefit surplus and other receivables. The Group
has net working capital of minus GBP1,615 million (31 December
2016: minus GBP1,102 million), current provisions of GBP659 million
(31 December 2016: GBP251 million) and long-term liabilities other
than borrowings of GBP6,910 million (31 December 2016: GBP3,388
million).
Assets held for sale. At 30 June 2017, the Group's assets held
for sale of GBP146 million and liabilities held for sale of GBP109
million comprises the carrying value of RB Food, which meets the
definition of a disposal group at 30 June 2017.
Dividends. The Board of Directors declares an interim dividend
of 66.6p (2016: 58.2p) in line with its stated policy to pay out
about 50% of basic adjusted earnings per share.
The ex-dividend date will be 17 August 2017 and the dividend
will be paid on 28 September 2017 to shareholders on the register
at the record date of 18 August 2017. The last date for election
for the share alternative to the dividend is 7 September 2017.
Legal provisions. The Group is involved in litigation, disputes
and investigations in multiple jurisdictions around the world. It
has made provisions for such matters, where appropriate. Where it
is too early to determine the likely outcome of these matters or to
make a reliable estimate, the Directors have made no provision for
such potential liabilities.
From time to time the Group is involved in discussions in
relation to ongoing tax matters in a number of jurisdictions around
the world. Where appropriate, the Directors make provisions based
on their assessment of each case.
As a matter of policy and practice, the Group co-operates with
all government investigations. The Group maintains and continues to
improve a robust compliance training programme and ensures that all
executive managers sign a periodic disclosure and reporting
document certifying compliance with the Group's Code of
Conduct.
Contingent liabilities. The Group is involved in a number of
civil and/or criminal investigations by government authorities as
well as litigation proceedings and has made provisions for such
matters where appropriate. Where it is too early to determine the
likely outcome of these matters or to make a reliable estimate, the
Directors have made no provision for such potential liabilities.
Contingent liabilities are explained in Note 13.
Discontinued Operations
As explained elsewhere in this report, the following are treated
as discontinued operations for the six months ended 30 June 2017,
in accordance with IFRS 5:
- RB Food
- An exceptional cost relating to the Group's previously demerged RB Pharmaceuticals business
Comparatives have also been restated.
A breakdown of the discontinued result for H1 is as follows:
Half Year ended 30 June
2017 2016* % change
GBPm GBPm exch. Rates
actual const.
Net Revenue 208 183 +14% 0%
Net Income (adjusted) 46 42 +10% -4%
Adjusting items - RB Pharmaceuticals (net of tax) (318) -
Net (loss) / income (reported) (272) 42
--------------------------------------------------- ------ ------ ------- -------
* 2016 adjusted operating profit has been restated to exclude an
allocation of RB central costs of GBP11m. The annualised value of
RB "stranded" fixed costs is GBP23m and has been allocated to ENA
and DvM on a pro-rata basis.
RB Food
The assets and liabilities related to RB Food have been
presented as held for sale at 30 June 2017 having met the IFRS 5
criteria. On 19 July, the Group announced that it had agreed to
sell the Food business to McCormick, with completion of the
transaction expected during Q3 2017.
H1 net revenue was GBP208 million, a flat performance versus the
prior year. Adjusted operating profit was GBP62 million, a 29.8%
margin and +30bps versus the prior year.
Quarter ended Half Year ended
30 June 30 June
% change % change
2017 2016 exch. rates 2017 2016 exch. rates
GBPm GBPm actual const. GBPm GBPm actual const.
103 95 +8% -3% Net revenue 208 183 +14% 0%
Operating profit - adjusted 62 54 +15% +2%
Operating margin - adjusted 29.8% 29.5% +30bps
------- ----- ------- ------- ---------------------------- ------ ------ ------- -------
Indivior - litigation matters
We noted in our 2016 annual report that the Group was involved
in ongoing investigations by the US Department of Justice (DoJ) and
the US Federal Trade Commission and related litigation proceedings
arising from certain matters relating to the RB Pharmaceuticals
(RBP) business prior to its demerger in December 2014 to form
Indivior plc and may incur liabilities in relation to such
matters.
These investigations and related proceedings are continuing and
we are in active discussions with the DoJ. As a consequence of
these discussions we have recorded a charge of GBP318 million in
our second quarter results. It has been recorded within our
discontinued operations line, as RBP was demerged in December
2014.
The Group remains committed to ensuring these issues are
concluded or resolved satisfactorily but we cannot predict with any
certainty whether we will be able to reach any agreement with the
DoJ or other parties who are involved in the related proceedings.
The final cost for the Group may be materially higher than this
reserve.
2017 Targets
Following the acquisition of Mead Johnson Nutrition we target
the following:
Net Revenue target (Full Year)
- As set out in our statement of 6 July, we are now targeting
full year net revenue +2% LFL growth(1) for the RB base
business.
- For Mead Johnson Nutrition, we target -2% to flat LFL growth(1) in H2.
Operating margin (medium term)
- For the RB base business operating margin continues to make
satisfactory progress and we reiterate our medium-term target of
moderate margin expansion(2) .
- For Mead Johnson Nutrition, operating margin prior to closing
was slightly weaker than initially expected. We see significant
opportunity within the business and remain confident that operating
margin expansion(2) over the medium term will be in line with our
plan.
(1) At constant rates, excluding the impact of acquisitions,
disposals and discontinued operations.
(2) Adjusted to exclude the impact of adjusting items.
Principal Risks and Uncertainties
----------------------------------
Except for the impact of the recently completed acquisition of
Mead Johnson Nutrition, the Directors consider that the principal
risks and uncertainties which could have a material impact on the
Group's performance in the remaining six months of 2017 are largely
the same as those described on pages 46 to 53 of the Annual Report
and Financial Statements for the year ended 31 December 2016. These
include:
-- Risk of not having a robust process for assessment of product
safety, this may result in customer safety issues, reputational
damage, significant financial losses and possible criminal
liability for RB senior management.
-- Risk that non-compliance with regulations (e.g. licences,
manufacturing, products and laws) results in significant financial
losses arising from regulator-enforced factory closures, product
recalls, delayed launches, penalties, possible criminal liability
etc.
-- Risk of financial and reputational risk as a result of health
issues in South Korea, caused by prolonged inhalation of a
humidifier sanitiser product acquired in 2001.
-- Risk that targets cannot be delivered due to technology
failures or a lack of growth-enabling systems and infrastructure
capabilities, leading to business disruption.
-- Risk that our business continuity plans, including
monosourcing (materials and products) are inadequate and we face
interruptions to our supply chain and disruptions in our production
facilities, which could materially adversely affect our results of
operations.
-- Risk that we are not fully compliant with UK and local laws
including the UK Bribery Act, Competition laws and Data and Privacy
Protection laws, resulting in damage to RB's reputation,
significant potential fines and possible criminal liability.
-- Risk of significant unprovisioned cash outflows as a result
of tax authority challenge to filed positions in key
territories.
-- Risk that RB cannot implement its strategies and meet
objectives as a result of key management leaving the business who
cannot be readily replaced by equally experienced / qualified
candidates.
-- Risk of significant reputational impact as a result of
systemic product quality issues resulting in undermining of
consumer confidence in our brands, particularly in the growing
Health Care portfolio.
-- Risk that work accidents harm RB employees or other workers
on RB premises, or premises under RB supervision in the case of
outsourced operations, result in loss of life or other injuries,
factory closure, reputational damage and possible criminal
liability.
-- Risk that RB is subject to increasingly sophisticated
cyber-attacks aimed at causing business disruption, capture of data
for financial gain, general embarrassment and reputational damage
or that RB's data privacy protective measures are considered by
regulators to be inadequate.
The acquisition of Mead Johnson Nutrition will have an impact on
the Group's principal risks and uncertainties. The Directors will
be incorporating this into a more complete risk assessment in the
second half of 2017, as the two businesses begin to integrate. That
said, based on our preliminary assessment of risk and uncertainty,
and as highlighted in the Shareholder Circular dated 5 May 2017,
the principal risks and uncertainties expected to be incorporated
as a result of the acquisition are:
-- Risk of greater exposure to certain developing markets and, in particular, China.
-- Heightened risks associated with a new portfolio of products
and the associated regulations, including compliance with US FDA
requirements as well as similar regulations in other territories,
including China, as well as related product quality and liability
risks.
-- An increased exposure to commodity price risk.
-- Increased risks posed by the increase in the Group's
borrowings used to fund the acquisition.
The Group's Annual Report and Financial Statements for the year
ended 31 December 2016 is available on the Group's website at
www.rb.com.
The Group at a Glance - continuing operations (unaudited)
Quarter ended Half year ended
30 June 30 June
2016** 2016**
2017 (restated) 2017 (restated)
GBPm GBPm GBPm GBPm
2,479 2,171 Net revenue - total 5,017 4,386
Net revenue growth
-2% +4% - like-for-like -1% +5%
Net revenue growth
+3% +3% - constant +2% +4%
Net revenue growth
+14% +4% - total +14% +5%
Gross margin 60.4% 60.3%
EBITDA - adjusted* 1,279 1,107
EBITDA margin -
adjusted* 25.5% 25.2%
EBIT 1,063 708
EBIT margin 21.2% 16.1%
EBIT - adjusted* 1,190 1,027
EBIT margin - adjusted* 23.7% 23.4%
Profit before tax 1,016 697
Net income 777 484
Net income - adjusted* 888 780
EPS, basic, as reported 110.8p 68.6p
EPS, adjusted and
diluted* 124.9p 108.8p
------ ----------- ------------------------ ------- -----------
* Adjusted to exclude the impact of adjusting items.
** Restated to exclude discontinued operations.
For further information, please contact:
RB
Richard Joyce
SVP, Investor Relations, Communications
& External Affairs
Patty O'Hayer
Director, External Relations
and Government Affairs +44 (0)1753 217800
Brunswick (Financial PR)
David Litterick +44 (0)20 7404 5959
LEI: 5493003JFSMOJG48V108
Disclaimers
Cautionary note concerning forward-looking statements
This document contains statements with respect to the financial
condition, results of operations and business of RB (the "Group")
and certain of the plans and objectives of the Group that are
forward-looking statements. Words such as 'intends', 'targets', or
the negative of these terms and other similar expressions of future
performance or results, and their negatives, are intended to
identify such forward-looking statements. In particular, all
statements that express forecasts, expectations and projections
with respect to future matters, including targets for net revenue,
operating margin and cost efficiency, are forward-looking
statements. Such statements are not historical facts, nor are they
guarantees of future performance.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number of
factors that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements, including many factors outside the Group's control.
Among other risks and uncertainties, the material or principal
factors which could cause actual results to differ materially are:
the general economic, business, political and social conditions in
the key markets in which the Group operates; the ability of the
Group to manage regulatory, tax and legal matters, including
changes thereto; the reliability of the Group's technological
infrastructure or that of third parties on which the Group relies;
interruptions in the Group's supply chain and disruptions to its
production facilities; the reputation of the Group's global brands;
and the recruitment and retention of key management.
These forward-looking statements speak only as of the date of
this announcement. Except as required by any applicable law or
regulation, the Group expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change
in the Group's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
Half Year Condensed Financial Statements
Group Income Statement
For the six months ended 30 June 2017
Six months
ended
30 June 30 June
2017 2016
(restated)(1)
Note GBPm GBPm
--------------------------------------- ----------- -------- ---------------
Net revenue 4 5,017 4,386
Cost of sales (1,989) (1,742)
--------------------------------------- ----------- --------
Gross profit 3,028 2,644
Net operating expenses (1,965) (1,936)
--------------------------------------- ----------- -------- ---------------
Operating profit 4 1,063 708
--------------------------------------- ----------- -------- ---------------
Adjusted operating profit 1,190 1,027
Adjusting items 5 (127) (319)
Operating profit 1,063 708
--------------------------------------- ----------- -------- ---------------
Finance income 21 19
Finance expense 5 (68) (30)
--------------------------------------- ----------- -------- ---------------
Net finance expense (47) (11)
--------------------------------------- ----------- -------- ---------------
Profit before income tax 1,016 697
Income tax expense 6 (232) (211)
--------------------------------------- ----------- -------- ---------------
Net income for the period from
continuing operations 784 486
--------------------------------------- ----------- -------- ---------------
Net (loss) / income from discontinued
operations 5,10 (272) 42
Net income for the period 512 528
--------------------------------------- ----------- -------- ---------------
Attributable to non-controlling
interests 7 2
Attributable to owners of the parent 505 526
--------------------------------------- ----------- -------- ---------------
Net income for the period 512 528
--------------------------------------- ----------- -------- ---------------
Basic earnings per ordinary share:
From continuing operations (pence) 7 110.8 68.6
From discontinued operations (pence) 7 (38.8) 5.9
--------------------------------------- ----------- -------- ---------------
From total operations 7 72.0 74.5
--------------------------------------- ----------- -------- ---------------
Diluted earnings per ordinary share:
From continuing operations (pence) 7 109.3 67.5
From discontinued operations (pence) 7 (38.3) 5.9
--------------------------------------- ----------- -------- ---------------
From total operations 7 71.0 73.4
--------------------------------------- ----------- -------- ---------------
(1) Restated for the impact of discontinued operations (see note
10)
Group Statement of Comprehensive Income
For the six months ended 30 June 2017
Six months ended
30 June 30 June
2017 2016
(restated)(1)
GBPm GBPm
------------------------------------------- --------- ---------------
Net income for the period 512 528
Other comprehensive income / (expense)
Items that may be reclassified to profit or
loss in subsequent periods
Net exchange (losses) / gains on
foreign currency translation, net
of tax (179) 1,099
Gains / (losses) on net investment
hedges, net of tax 23 (78)
Gains / (losses) on cash flow hedges,
net of tax 3 (55)
Revaluation of available for sale 4 -
financial assets
(149) 966
Items that will not be reclassified to profit
or loss in subsequent periods
Remeasurements of defined benefit pension
plans, net of tax 4 (126)
-------------------------------------------- --------- ---------------
4 (126)
Other comprehensive (loss) / income
for the period, net of tax (145) 840
Total comprehensive income for
the period 367 1,368
-------------------------------------------- --------- ---------------
Attributable to non-controlling
interests 6 2
Attributable to owners of the parent 361 1,366
-------------------------------------------- --------- ---------------
Total comprehensive income for
the period 367 1,368
-------------------------------------------- --------- ---------------
Total comprehensive income attributable
to owners of the parent arising
from:
Continuing operations 639 1,324
Discontinued operations (272) 42
-------------------------------------------- --------- ---------------
367 1,366
------------------------------------------- --------- ---------------
(1) Restated for the impact of discontinued operations (see note
10)
Group Balance Sheet
As at 30 June 2017
30 June 31 December
2017 2016
Note GBPm GBPm
ASSETS
Non-current assets
Goodwill and other intangible assets 30,139 13,454
Property, plant and equipment 1,810 878
Available for sale assets 42 39
Deferred tax assets 38 81
Retirement benefit surplus 42 36
Other non-current receivables 94 81
------------
32,165 14,569
------------
Current assets
Inventories 1,322 770
Trade and other receivables 1,846 1,623
Derivative financial instruments 52 158
Current tax recoverable 28 14
Short term investments 1 3
Cash and cash equivalents 2,462 882
------------------------------------------ ----- --------- ------------
5,711 3,450
Assets of disposal group classified
as held for sale 10 146 -
------------------------------------------ ----- --------- ------------
5,857 3,450
------------
Total assets 38,022 18,019
------------------------------------------ ----- --------- ------------
LIABILITIES
Current liabilities
Short-term borrowings (1,200) (1,585)
Provisions for liabilities and
charges 9 (659) (251)
Trade and other payables (4,783) (3,495)
Derivative financial instruments (36) (58)
Current tax liabilities (29) (12)
------------------------------------------ ----- --------- ------------
(6,707) (5,401)
Liabilities of disposal group classified
as held for sale 10 (109) -
------------------------------------------ ----- --------- ------------
(6,816) (5,401)
------------------------------------------ ----- --------- ------------
Non-current liabilities
Long-term borrowings (16,027) (804)
Deferred tax liabilities (4,993) (1,983)
Retirement benefit obligations (439) (361)
Provisions for liabilities and
charges 9 (112) (174)
Non-current tax liabilities (1,170) (740)
Other non-current liabilities (196) (130)
------------------------------------------ ----- --------- ------------
(22,937) (4,192)
------------------------------------------ ----- --------- ------------
Total liabilities (29,753) (9,593)
------------------------------------------ ----- --------- ------------
Net assets 8,269 8,426
------------------------------------------ ----- --------- ------------
EQUITY
Capital and reserves
Share capital 11 74 74
Share premium 243 243
Merger reserve (14,229) (14,229)
Hedging reserve - (4)
Foreign currency translation reserve 370 526
Retained earnings 21,772 21,811
Attributable to owners of the parent 8,230 8,421
Attributable to non-controlling
interests 39 5
------------------------------------------ ----- --------- ------------
Total equity 8,269 8,426
------------------------------------------ ----- --------- ------------
Group Statement of Changes in Equity
For the six months ended 30 June 2017
Total
attributable
to owners
Share Share Merger Other Retained of the Non-controlling Total
capital premium reserves reserves earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Balance at 1
January 2017 74 243 (14,229) 522 21,811 8,421 5 8,426
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Net income for
the period - - - - 505 505 7 512
Other
comprehensive
income - - - (152) 8 (144) (1) (145)
Total
comprehensive
income - - - (152) 513 361 6 367
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Transactions
with owners
Share-based
payments 36 36 36
Deferred tax
on share awards (3) (3) (3)
Current tax - - -
on share awards
Arising on
business
combination - - 31 31
Re-issue of
Treasury shares 81 81 81
Dividends (666) (666) (3) (669)
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Total
transactions
with owners (552) (552) 28 (524)
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Balance at 30
June 2017 74 243 (14,229) 370 21,772 8,230 39 8,269
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Balance at 1
January 2016 74 243 (14,229) (946) 21,762 6,904 2 6,906
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Net income for
the period 526 526 2 528
Other
comprehensive
income 966 (126) 840 840
Total
comprehensive
income - - - 966 400 1,366 2 1,368
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Transactions
with owners
Share-based
payments 33 33 33
Deferred tax
on share awards 5 5 5
Current tax
on share awards 6 6 6
Transactions
with
non-controlling
interests (52) (52) (52)
Shares
repurchased
and held in
Treasury (500) (500) (500)
Re-issue of
Treasury shares 61 61 61
Dividends (625) (625) (625)
Total
transactions
with owners - - - - (1,072) (1,072) - (1,072)
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Balance at 30
June 2016 74 243 (14,229) 20 21,090 7,198 4 7,202
----------------- --------- --------- ---------- ---------- ---------- ------------- ---------------- --------
Group Cash Flow Statement
For the six months ended 30 June 2017
Six months ended
30 June 30 June
2017 2016
(restated)
Note GBPm GBPm
----------------------------------------- ----- --------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Operating profit from continuing
operations 1,063 708
Depreciation, amortisation and
impairment 89 80
Increase in inventories (29) (4)
Decrease in trade and other receivables 13 157
Increase in payables and provisions 352 110
Non-cash adjusting items 5 79 305
Share-based payments 36 33
Cash generated from operations 1,603 1,389
Interest paid (55) (26)
Interest received 20 18
Tax paid (227) (230)
Net cash flows attributable to
discontinued operations 47 48
Net cash generated from operating activities 1,388 1,199
------------------------------------------------ --------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant &
equipment (91) (62)
Purchase of intangible assets (12) (198)
Proceeds from the sale of intangible 9 -
assets
Proceeds from the sale of property,
plant & equipment 4 1
Acquisition of businesses, net
of cash acquired 15 (11,848) (42)
Disposal / (purchase) of short-term
investments 1 (106)
Net cash flows attributable to
discontinued operations (1) (1)
Net cash used investing activities (11,938) (408)
------------------------------------------------ --------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Shares repurchased and held in
Treasury 11 - (400)
Treasury shares reissued 81 61
Proceeds from borrowings 19,120 200
Repayment of borrowings (6,390) (41)
Dividends paid to owners of the
parent 12 (666) (625)
Dividends paid to non-controlling (3) -
interests
Other financing activities 8 114
Net cash from financing activities 12,150 (691)
----------------------------------------- ----- --------- --------------------
Net increase / (decrease) in cash
and cash equivalents 1,600 100
Cash and cash equivalents at beginning
of period 873 737
Exchange (losses) / gains (35) 55
Cash and cash equivalents at end
of the period 2,438 892
----------------------------------------- ----- --------- --------------------
Cash and cash equivalents comprise:
----------------------------------------- ----- --------- --------------------
Cash and cash equivalents 2,462 894
Overdrafts (24) (2)
----------------------------------------- ----- --------- --------------------
2,438 892
----------------------------------------- ----- --------- --------------------
1. General Information
Reckitt Benckiser Group plc is a public limited company listed
on the London Stock Exchange and incorporated and domiciled in the
UK. The address of its registered office is 103-105 Bath Road,
Slough, Berkshire SL1 3UH.
The Half Year Condensed Financial Statements were approved by
the Board of Directors on 24 July 2017. The Half Year Condensed
Financial Statements have been reviewed, not audited.
2. Basis of Preparation
The Half Year Condensed Financial Statements for the six months
ended 30 June 2017 have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct
Authority and IAS 34 Interim Financial Reporting as endorsed by the
European Union. The Half Year Condensed Financial Statements should
be read in conjunction with the Annual Report and Financial
Statements for the year ended 31 December 2016, which have been
prepared in accordance with European Union endorsed International
Financial Reporting Standards (IFRS) and those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements for the year ended 31 December 2016 are
also in compliance with IFRS as issued by the International
Accounting Standards Board (IASB).
These Half Year Condensed Financial Statements do not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006. Statutory accounts for the year ended 31
December 2016 were approved by the Board of Directors on 22 March
2017 and delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
Having assessed the principal risks, the Directors considered it
appropriate to adopt the going concern basis of accounting in
preparing the interim financial information.
3. Accounting Policies and Estimates
With the exception of the revision for adjusting items described
in Note 5, the accounting policies adopted in the preparation of
the Half Year Condensed Financial Statements are consistent with
those described on pages 110-114 of the Annual Report and Financial
Statements for the year ended 31 December 2016.
There are no new standards, amendments or interpretations which
have been adopted for the first time which have a significant
impact on the accounting policies applied in preparing the Half
Year Condensed Financial Statements.
Management continues to assess the impact of IFRS 15 Revenue
from contracts with customers, which will be effective for annual
periods beginning on or after 1 January 2018, the revised issuance
of IFRS 9 Financial Instruments, which will be effective for annual
periods beginning on or after 1 January 2018 and IFRS 16 Leases
which will be effective for annual periods beginning or after 1
January 2019. A number of other new standards, amendments and
interpretations are effective for annual periods beginning on or
after 1 January 2018 and have not been applied in preparing these
financial statements.
In preparing these Half Year Condensed Financial Statements, the
significant estimates and judgements made by management in applying
the Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the Group
financial statements for the year ended 31 December 2016. However,
the acquisition of Mead Johnson Nutrition has significantly
increased the carrying value of goodwill and other intangible
assets, for which the measurement at initial recognition on 15 June
2017 is subject to estimation uncertainty.
Income tax expense for the six months is accrued using the
expected tax rate that would be applicable to the total annual
profit, before the impact of adjusting items, for the year ending
31 December 2017. Refer to Note 6 for further details.
4. Operating Segments
The Executive Committee is the Group's Chief Operating
Decision-Maker (CODM). The Group's operating segments are reported
based on the segment information reviewed by the Executive
Committee for the purposes of making strategic decisions and
assessing performance. As a result of the acquisition of Mead
Johnson Nutrition, the Group has created a new operating segment,
Infant Formula and Child Nutrition (IFCN). In addition, because of
its classification as a discontinued operation, the previously
reported operating segment for Food is no longer presented and the
comparatives have been restated. The ENA and DvM operating segments
remain unchanged.
ENA comprises Europe, Russia/CIS, Israel, North America,
Australia and New Zealand. DvM principally comprises North Africa,
Middle East (excluding Israel), Turkey, Africa, South Asia, North
Asia, Latin America, Japan, Korea and ASEAN.
ENA and DvM derive their revenue primarily from the sale of
branded products in the Health, Hygiene and Home categories. IFCN
revenue is allocated to the Health category.
The Executive Committee assesses the performance of the
operating segments based on net revenue from external customers and
Adjusted Operating Profit. Intercompany transactions between
operating segments are eliminated. Finance income and expense are
not allocated to segments, as they are managed on a central Group
basis.
The segment information provided to the Executive Committee for
the periods ending 30 June 2017 and 30 June 2016 is as follows:
Six months ended 30
June 2017 ENA DvM IFCN Total
GBPm GBPm GBPm GBPm
---------------------------- ------ ------ ----- ------
Net revenue 3,189 1,702 126 5,017
Depreciation, amortisation
and impairment 53 32 4 89
------------------------------ ------ ------ ----- ------
Adjusted operating profit 827 344 19 1,190
Adjusting items (127)
------------------------------ ------ ------ ----- ------
Operating profit 1,063
Net finance expense (47)
------------------------------ ------ ------ ----- ------
Profit before income
tax 1,016
------------------------------ ------ ------ ----- ------
Six months ended 30 June
2016 (restated) ENA DvM IFCN Total
GBPm GBPm GBPm GBPm
---------------------------- ------ ------ ----- ------
Net revenue 2,929 1,457 - 4,386
Depreciation, amortisation
and impairment 54 26 - 80
----------------------------- ------ ------ ----- ------
Adjusted operating
profit 747 291 - 1,038
Reallocation of central
costs (7) (4) - (11)
------------------------------ ------ ------ ----- ------
Adjusted operating
profit restated(1) 740 287 - 1,027
Adjusting items (319)
------------------------------ ------ ------ ----- ------
Operating profit 708
Net finance expense (11)
------------------------------ ------ ------ ----- ------
Profit before income
tax 697
------------------------------ ------ ------ ----- ------
(1) Restated to exclude discontinued operations.
Analysis of Categories
The Group also analyses its revenue by the following
categories.
Six months
ended
30 June 30 June
2017 2016
GBPm GBPm
--------------------- -------- --------
Health 1,797 1,501
Hygiene 2,196 1,934
Home 912 834
Portfolio Brands(1) 112 117
--------------------- -------- --------
Total 5,017 4,386
--------------------- -------- --------
(1) Restated to exclude discontinued operations.
5. Adjusting items
The Group uses certain adjusted earnings measures, including
adjusted operating profit to provide additional clarity about the
underlying performance of the business. As a consequence of the
acquisition of Mead Johnson Nutrition, the Group has refined its
accounting policy to make reference to adjusting items in
presenting the Group's principal adjusted earnings measures.
Adjusting items comprise exceptional items, which have historically
been excluded from the Group's adjusted earnings measures, and the
amortisation of acquired finite-life intangible assets.
Exceptional items, which remain as previously defined, are
material, non-recurring items of expense or income incurred during
a period. Examples of exceptional items include the following:
-- Restructuring and other expenses relating to the integration
of an acquired business and related expenses for reconfiguration of
the Group's activities;
-- Impairments of current and non-current assets;
-- Gains/losses on disposals of businesses;
-- Acquisition-related costs, including advisor fees and certain
financing fees incurred for significant transactions and
adjustments to the fair values of assets and liabilities that
result in non-recurring charges to the income statement; and
-- Costs arising because of material and non-recurring regulatory and litigation matters.
Other Adjusting items comprise the amortisation of certain
acquired finite-life intangible assets.
The table below provides a reconciliation of the Group's
reported statutory earnings measures to its adjusted measures for
the six months ended 30 June 2017:
Adjusting: Adjusting: Adjusted
Six months ended 30 Exceptional Other
June 2017 Reported items items
GBPm GBPm GBPm GBPm
--------------------------------- --------- ------------- ---- ----------- ---- ---------
Operating profit 1,063 123 (1) 4 (4) 1,190
Net finance expense (47) 23 (2) - (24)
--------------------------------- --------- ------------- ---- ----------- ---- ---------
Profit before income
tax 1,016 146 4 1,166
Income tax expense (232) (39) (3) - (271)
--------------------------------- --------- ------------- ---- ----------- ---- ---------
Net income for the
period from continuing
operations 784 107 4 895
Attributable to non-controlling
interests (7) - - (7)
--------------------------------- --------- ------------- ---- ----------- ---- ---------
Net income for the
period attributable
to owners of the parent
(continuing) 777 107 4 888
Net income for the
period from discontinued
operations (272) 318 (5) - 46
--------------------------------- --------- ------------- ---- ----------- ---- ---------
Total net income for
the period attributable
to owners of the parent 505 425 4 934
================================= ========= ============= ==== =========== ==== =========
(1) Exceptional items within operating profit of GBP123 million
include GBP108 million relating to the acquisition of Mead Johnson
Nutrition, which comprise the following:
-- transaction fees of GBP70 million
-- severance costs incurred to date of GBP20 million
-- integration costs incurred to date of GBP4 million
-- unwinding of fair value adjustments made to inventories
recorded on the provisional purchase price allocation of GBP14
million
The remaining exceptional costs within operating profit of GBP15
million relate to costs incurred in respect of previously announced
restructuring projects, including Project Supercharge.
(2) Exceptional costs included within net finance expense of
GBP23 million comprise certain accelerated finance fees recorded as
a direct result of the acquisition of Mead Johnson Nutrition, when
short-term bridge facilities were replaced with the issuance of
$7,750 million of fixed and floating rate loan notes, during June
2017.
(3) Included within income tax expense is GBP39 million,
representing the tax credit for the exceptional costs enumerated
above.
(4) Adjusting items of GBP4 million relate to the amortisation
of certain intangible assets recognised as a result of the
acquisition of Mead Johnson Nutrition, charged over the two-week
period since the acquisition and up to 30 June 2017.
(5) Adjusting items included in discontinued operations comprise
the exceptional charge recorded in the six months ended 30 June
2017 of GBP318 million (six months ended 30 June 2016: GBPnil), in
respect of the provision for the ongoing investigations by the US
Department of Justice (DOJ) and the US Federal Trade Commission,
and related litigation proceedings, arising from certain matters
relating to the RB Pharmaceuticals business prior to its demerger
in December 2014. See Note 9.
The table below provides a reconciliation of the Group's
reported statutory earnings measures to its adjusted measures for
the six months ended 30 June 2016:
Adjusting: Adjusting: Adjusted
Six months ended 30 Exceptional Other
June 2016 Reported items items
GBPm GBPm GBPm GBPm
--------------------------------- --------- ------------- ---- ----------- ---------
Operating profit 708 319 (6) - 1,027
Net finance expense (11) - - (11)
--------------------------------- --------- ------------- ---- ----------- ---------
Profit before income
tax 697 319 - 1,016
Income tax expense (211) (23) (7) - (234)
--------------------------------- --------- ------------- ---- ----------- ---------
Net income for the
period from continuing
operations 486 296 - 782
Attributable to non-controlling
interests (2) - - (2)
--------------------------------- --------- ------------- ---- ----------- ---------
Net income for the
period attributable
to owners of the parent
(continuing) 484 296 - 780
Net income for the
period from discontinued
operations 42 - - 42
--------------------------------- --------- ------------- ---- ----------- ---------
Total net income for
the period attributable
to owners of the parent 526 296 - 822
================================= ========= ============= ==== =========== =========
(6) Exceptional items in the six months ended 30 June 2016
substantially comprise costs related to the HS issue in Korea.
(7) Included within income tax expense is GBP23 million,
representing the tax credit for the exceptional costs.
6. Income Taxes (continuing operations)
Income tax expense is recognised based on management's best
estimate of the weighted average annual income tax rate applying to
profits before the impact of exceptional items expected for the
full financial year. The estimated average annual tax rate for
continuing operations before exceptional items for the year to 31
December 2017 is 23% and therefore the estimated tax rate before
exceptional items for the six months ended 30 June 2017 was 23%.
The income tax credit arising on exceptional items for the six
months ended 30 June 2017 is GBP39 million, giving an effective tax
rate for the period ended 30 June 2017 of 23%.
7. Earnings per Share
Six months ended
30 June 30 June
2017 2016 (restated)(1)
pence pence
----------------------------------------- -------- --------------------
Basic earnings per share
From continuing operations 110.8 68.6
From discontinued operations (38.8) 5.9
----------------------------------------- -------- --------------------
Total basic earnings per share 72.0 74.5
Diluted earnings per share
From continuing operations 109.3 67.5
From discontinued operations (38.3) 5.9
----------------------------------------- -------- --------------------
Total diluted earnings per share 71.0 73.4
Six months ended
30 June 30 June
2017 2016 (restated)(1)
pence pence
Adjusted basic earnings per share
From continuing operations 126.6 110.5
From discontinued operations 6.6 5.9
----------------------------------------- -------- --------------------
Total adjusted basic earnings per share 133.2 116.4
Adjusted diluted earnings per share
From continuing operations 124.9 108.8
From discontinued operations 6.5 5.9
----------------------------------------- -------- --------------------
Total adjusted diluted earnings per
share 131.4 114.7
----------------------------------------- -------- --------------------
(1) Restated for impact of discontinued operations (see note
10)
Basic
Basic earnings per share is calculated by dividing the net
income attributable to owners of the parent from continuing
operations (six months to 30 June 2017: GBP777 million; six months
to 30 June 2016: GBP484 million) and discontinued operations (six
months to 30 June 2017: net loss of GBP272 million; six months to
30 June 2016: net income of GBP42 million) by the weighted average
number of ordinary shares in issue during the period (six months to
30 June 2017: 701,174,683; six months to 30 June 2016:
705,932,934).
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of shares outstanding to assume conversion
of all potentially dilutive ordinary shares. The Company has the
following categories of potentially dilutive ordinary shares:
Executive Share Awards (including Executive Share Options and
Executive Restricted Share Scheme Awards) and Employee Sharesave
Scheme Options. The options only dilute earnings when they result
in the issue of shares at a value below the market price of the
share and when all performance criteria (if applicable) have been
met. As at 30 June 2017 there were nil (30 June 2016: nil)
Executive Share Awards, excluded from the dilution.
Adjusted earnings
The Directors believe that diluted earnings per ordinary share,
which excludes the impact of adjusting items, provides additional
useful information on underlying trends to Shareholders in respect
of earnings per ordinary share.
Details of the adjusted net income attributable to owners of the
parent are as follows:
Six months
ended
30 June
30 June 2016
2017 (restated)(1)
Continuing operations GBPm GBPm
Net income attributable to owners of
the parent 777 484
Adjusting items included within operating
profit 5 127 319
Adjusting items included within net finance
costs 5 23 -
Tax effect of adjusting items 5 (39) (23)
--------------------------------------------- --- ----- ---------------
Adjusted net income attributable to owners
of the parent from continuing operations 888 780
--------------------------------------------- --- ----- ---------------
(1) Restated for impact of discontinued operations (see note
10)
Adjusting items included within net finance costs of GBP23
million comprise certain accelerated finance fees recorded as a
direct result of the acquisition of Mead Johnson Nutrition when
short-term bridge facilities were replaced with the issuance of
$7,750 million of fixed and floating rate loan notes during June
2017.
Six months
ended
30 June 30 June
2017 2016
Discontinued operations GBPm GBPm
Net (loss) / income attributable to owners
of the parent (272) 42
Adjusting items 5 318 -
Tax effect of adjusting items - -
--------------------------------------------- ------ --------
Adjusted net income attributable to owners
of the parent from discontinued operations 46 42
--------------------------------------------- ------ --------
Average number of shares
30 June 30 June
2017 2016
Average Average
number of number of
shares shares
On a basic basis 701,174,683 705,932,934
Dilution of Executive Share Awards 8,967,931 9,958,562
Dilution for Employee Sharesave
Scheme Options outstanding 705,402 706,585
------------------------------------ ------------ ------------
On a diluted basis 710,848,016 716,598,081
------------------------------------ ------------ ------------
8. Net Debt
30 June 31 December
2017 2016
Analysis of net debt GBPm GBPm
------------
Cash and cash equivalents 2,462 882
Overdrafts (24) (9)
Borrowings (excluding overdrafts) (17,203) (2,380)
Short term investments 1 3
Debt related derivative financial
instruments 13 113
--------- ------------
(14,751) (1,391)
----------------------------------- --------- ------------
Short term investments constitute financial instruments that are
not readily convertible into cash.
30 June 31 December
2017 2016
Reconciliation of net debt GBPm GBPm
------------
Net debt at beginning of period (1,391) (1,620)
Net increase in cash and cash equivalents 1,600 73
Proceeds from borrowings (19,120) (469)
Repayment of borrowings 6,390 695
Arising on business combination (2,525) -
Transferred to disposal group classified - -
as held for sale
(Disposal) / purchase of short term
investments (2) 3
Exchange and other movements 297 (73)
------------------------------------------- --------- ------------
Net debt at the end of the period (14,751) (1,391)
------------------------------------------- --------- ------------
9. Provisions for Liabilities and Charges
Six months ended 30 June 2017 Legal Restructuring Other Total
provisions provisions provisions provisions
GBPm GBPm GBPm GBPm
---------------------------------------------------------- ---------- ------------- ---------- ----------
At 1 January 2017 329 22 74 425
Charged to the income statement 374 4 16 394
Arising on business combination - 56 - 56
Utilised during the year (53) (19) - (72)
Released to the income statement (26) - - (26)
Transferred to disposal group classified as held for sale (2) - - (2)
Exchange adjustments (2) (1) (1) (4)
---------------------------------------------------------- ---------- ------------- ---------- ----------
At 30 June 2017 620 62 89 771
---------------------------------------------------------- ---------- ------------- ---------- ----------
Provisions have been analysed between current and non-current as
follows:
30 June 31 December
2017 2016
GBPm GBPm
------------ ------- -----------
Current 659 251
Non-current 112 174
------------ ------- -----------
771 425
------------ ------- -----------
We noted in our 2016 Annual Report that the Group was involved
in ongoing investigations by the US Department of Justice (DOJ) and
the US Federal Trade Commission and related litigation proceedings
arising from certain matters relating to the RB Pharmaceuticals
(RBP) business prior to its demerger in December 2014 to form
Indivior PLC, and may incur liabilities in relation to such
matters. The matters covered include alleged marketing and
promotion practices by RBP, paediatric safety claims allegedly made
by RBP and the Group, and alleged overprescribing of medication by
certain physicians, as well as alleged violations by RBP (and
Reckitt Benckiser Healthcare (UK) Limited) of antitrust laws in
attempting to delay generic entry of alternatives to the tablet
form of its Suboxone treatment for opioid addiction.
These investigations and related proceedings are continuing and
we are in active discussions with the DOJ. As a consequence of
these discussions we have recorded a charge of GBP318 million in
our second quarter results. It has been recorded within our
discontinued operations, as RBP was demerged in December 2014.
The Group remains committed to ensuring these issues are
concluded or resolved satisfactorily but we cannot predict with any
certainty whether we will be able to reach any agreement with the
DOJ or other parties who are involved in the related proceedings.
The final cost for the Group may be materially higher than the
amount provided.
Legal provisions of GBP620 million (31 December 2016: GBP329
million) include GBP557 million (31 December 2016: GBP277 million)
of exceptional legal provisions. As well as the matter referred to
above, legal provisions relate to certain historical regulatory
matters in a number of markets, including a provision with respect
to the HS issue in South Korea.
The provision for certain costs arising as a result of the HS
issue was originally made at 30 June 2016, including costs arising
from compensating Oxy HS category I and II victims classified
within Rounds 1, 2 and 3 of the Korean Centre for Disease Control
(KCDC) classification process. At 30 June 2017, the provision model
has been updated to reflect the most recent settlement experience
and other developments.
At 30 June 2017, all Round 1 and 2 and 452 of 752 (60%) of Round
3 claimants have now been categorised. The proportion classified as
Category I or II has steadily declined from 48% in Round 1, 30% in
Round 2 and is currently 13% in the Round 3 population assessed to
date.
Of the 183 Category I and II claimants in Rounds 1 and 2, 180
registered by the closing date, of which 161 have been assessed in
accordance with the compensation plan and 153 have accepted their
settlement offer.
The restructuring provision principally relates to business
integration costs, the majority of which are expected to be
utilised within one year.
Other provisions include environmental and other obligations
throughout the Group, the majority of which are expected to be used
within five years.
10. Assets Held for Sale and Discontinued Operations
The assets and liabilities of RB Food have been presented as
held for sale at 30 June 2017 having met the IFRS 5 criteria. On 19
July, the Group announced that it had agreed to sell the Food
business to McCormick & Company Inc., with completion of the
transaction expected during Q3 2017. RB Food is a major line of
business and therefore meets the definition of a discontinued
operation.
In addition, and as described in Note 5 the Group has recorded
an exceptional charge of GBP318 million in respect of its legacy RB
Pharmaceuticals business ("RBP"), which was demerged to form
Indivior in 2014. This charge is included within the results of
discontinued operations set out in (c) below.
(a) Assets of disposal group classi ed as held for sale
30 June 31 December
2017 2016
GBPm GBPm
------------------------------ -------- ------------
Other intangible assets 39 -
Property, plant and equipment 21 -
Deferred tax assets 6 -
Trade receivables 50 -
Inventories 30 -
Total 146 -
------------------------------ -------- ------------
(b) Liabilities of disposal group classi ed as held for sale
30 June 31 December
2017 2016
GBPm GBPm
Trade and other payables (85) -
Current tax liabilities (4) -
Deferred tax liabilities (18) -
Provisions (2) -
Total (109) -
------------------------- -------- ------------
(c) Analysis of the results of discontinued operations is as
follows:
30 June 30 June 30 June 30 June
2017 2017 2017 2016
RB Food RBP Total Total
GBPm GBPm GBPm GBPm
Revenue 208 - 208 183
Expenses (145) (318) (463) (129)
---------------------- --------- -------- -------- --------
Profit / (loss)
before tax 63 (318) (255) 54
Tax (17) - (17) (12)
---------------------- --------- -------- -------- --------
Pro t / (loss) for
the year 46 (318) (272) 42
---------------------- --------- -------- -------- --------
Total discontinued operations in the six months ended 30 June
2016 comprises RB Food.
(d) Cash flows
30 June 30 June
2017 2016
GBPm GBPm
Cash flows from operating
activities 47 48
Cash flows from investing
activities (1) (1)
Cash flows from financing - -
activities
--------------------------------- -------- --------
Total cash flows - discontinued
operations 46 47
----------------------------------- -------- --------
Cash flows from discontinued operations all relate to RB
Food.
11. Share Capital
Equity Nominal
ordinary value
shares GBPm
Issued and fully paid
At 1 January 2017 736,535,179 74
Allotments - -
At 30 June 2017 736,535,179 74
------------------------- ------------ --------
At 30 June 2017, of the issued share capital, 33,073,907 shares
were held as Treasury shares (31 December 2016: 36,458,967). All
shares were fully paid.
12. Dividends
A final dividend of 95.0 pence per share for the year ended 31
December 2016 was paid on 25 May 2017 to Shareholders who were on
the register on 18 April 2017, this amounted to GBP666 million.
The Directors are proposing an interim dividend in respect of
the year ending 31 December 2017 of 66.6 pence per share which will
absorb an estimated GBP468 million of shareholders' funds. It will
be paid on 28 September 2017 to shareholders who are on the
register on 18 August 2017.
13. Contingent Liabilities and Assets
As disclosed in Note 9, the Group has recorded an exceptional
charge of GBP318 million with respect to ongoing investigations by
the US DOJ and the US Federal Trade Commission. The matters being
investigated are also subject to a class action by certain state
attorneys general in the US.
The Group remains committed to ensuring that these issues are
concluded or resolved satisfactorily but we cannot predict with any
certainty whether we will be able to reach any agreement with
parties who are involved in the various proceedings. The final cost
to the Group may be materially higher than the provision of GBP318
million recorded at 30 June 2017.
From time to time, the Group is involved in discussions in
relation to ongoing tax matters in a number of jurisdictions around
the world. Where appropriate, the Directors make provisions based
on their assessment of each case.
In addition, the Group is involved in certain civil and/or
criminal investigations by government authorities as well as
litigation proceedings and has made provisions for such matters
where appropriate. Where it is too early to determine the likely
outcome of these matters, or to make a reliable estimate, the
Directors have made no provision for such potential
liabilities.
HS South Korea
In addition to the matters described in Note 9, there are a
number of further expected costs and income relating to the HS
issue that either cannot be reliably estimated or which are not
considered probable at the current time. These are as follows:
1. Round 4 applicants: The South Korean government opened Round
4 to new applicants on 22 April 2016 for an indefinite period. It
has received 4,380 applications to participate in Round 4. Given no
categorisation has been published for Round 4, we are currently
unable to determine how many applicants may be eligible for
compensation through the Compensation Plan.
2. We continue to assess and, where appropriate, pursue rights
which Oxy RB may have to recover sums from other involved
parties.
3. Given the high profile and complex nature of this issue,
rules and regulations to be determined under the Act and other
legal or governmental proposals or developments in South Korea may
give rise to further financial liability for RB.
14. Financial Instruments
Except for the Group's bonds, the fair values of other financial
assets and liabilities approximate their carrying values.
The fair value measurement hierarchy levels have been defined as
follows:
1. Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
2. Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices) (level 2). If all
significant inputs required to fair value an instrument are
observable, the instrument is included in level 2.
3. Inputs for the asset or liability that are not based on
observable market data (i.e. unobservable inputs) (level 3).
There were no changes in valuation techniques or transfers
between hierarchy categories during the period.
The fair value of bonds at 30 June 2017 is a liability of
GBP9,181 million (31 December 2016: GBP821 million). This value is
derived using a quoted market rate in an active market (level 1
classification). The book value of bonds at 30 June 2017 is a
non-current liability of GBP9,189 million (31 December 2016: GBP804
million).
The fair value and book value of derivatives used for hedging at
30 June 2017 is a liability of GBP32 million (31 December 2016:
GBP47 million) and an asset of GBP25 million (31 December 2016:
GBP36 million). The fair value (and book value) of derivatives
classified as fair value through profit or loss at 30 June 2017 is
a liability of GBP8 million (31 December 2016: GBP11 million) and
an asset of GBP31 million (31 December 2016: GBP125 million). This
value is determined using forward exchange rates derived from
market sourced data at the balance sheet date, with the resulting
value discounted back to present value (level 2
classification).
The carrying value of assets and liabilities classified as held
for sale are disclosed in Note 10.
The Group's financial risk management objectives and policies
are consistent with those disclosed in the Annual Report and
Financial Statements for the year ended 31 December 2016.
15. Acquisition of Mead Johnson Nutrition
On 15 June 2017, the Group acquired 100% of the issued share
capital of Mead Johnson Nutrition for cash consideration of
GBP13,044 million ($16,642 million)
Mead Johnson Nutrition is a leader in global infant and
children's nutrition. The acquisition of Mead Johnson Nutrition is
aligned with the Group's well-established strategic focus on
growing in consumer health and on investing in Powerbrands with
attractive growth prospects. Provisional goodwill of GBP8.1 billion
arises on the acquisition, of which GBP3.2 billion is a consequence
of the requirement to record deferred tax liabilities for certain
acquired assets. Goodwill represents the potential for further
synergies arising from combining the acquired business with the
Group's existing businesses, together with the value of the
workforce acquired. None of the goodwill is expected to be
deductible for income tax purposes.
The following table summarises the consideration paid and the
provisional fair values of assets acquired and liabilities assumed.
The amount of consideration transferred in excess of the value of
total identifiable net assets is recorded as goodwill.
Recognised amounts of identifiable assets acquired and GBPm
liabilities assumed
-------------------------------------------------------- --------
Intangible assets 9,169
Property, plant and equipment 922
Inventories 556
Trade and other receivables 340
Cash and cash equivalents 1,196
Borrowings (2,525)
Retirement benefit obligations (77)
Deferred tax liabilities (3,209)
Trade and other payables (962)
Provisions (56)
Tax liabilities (396)
-------------------------------------------------------- --------
Total identifiable net assets 4,958
Non-controlling interest (31)
Goodwill 8,117
-------------------------------------------------------- --------
Total 13,044
Cash consideration 13,044
-------------------------------------------------------- --------
Total consideration transferred 13,044
Acquisition-related costs of GBP70 million have been included in
net operating expenses and disclosed as exceptional items in the
consolidated income statement.
Provisional intangible assets of GBP9,169 million, substantially
comprise the Enfa (GBP6,328 million) and Nutramigen (GBP1,718
million) brands. The fair values of identifiable net assets are
stated at provisional amounts which will be finalised within the
twelve-month measurement period following the acquisition. The
amounts recorded are provisional because of the proximity of the
acquisition to the balance sheet date.
From the date of acquisition to 30 June 2017 the acquisition
contributed GBP126 million to net revenue and GBP19 million to
adjusted operating profit. Had the acquisition taken place at 1
January 2017, using the pro-forma financial information (p10), the
enlarged Group consolidated net revenue would have been GBP6,319
million and adjusted operating profit would have been GBP1,455
million.
16. Related Party Transactions
RB & Manon Business Co. Ltd (Manon)
A dividend of GBP3m (HY 2016: nil) was paid to the
non-controlling shareholders of RB & Manon Business Co.
Ltd.
The parties are subject to symmetrical put and call options over
the non-controlling shareholdings, exercisable after a period of
six years, with possible extensions available at the agreement of
the parties. The present value of the put option at 30 June 2017
was a liability of GBP94m.
Indivior PLC
Subsequent to the demerger of RB Pharmaceuticals on 23 December
2014, the Group continues to lease part of a building and provide
operational services to Indivior PLC. The transitional services
between the Group and Indivior PLC are on an arm's length basis.
The amount included in other operating income in respect of these
services is GBP2m (2016: GBP2m). Adrian Hennah, the Reckitt
Benckiser Group plc CFO, also sat on the Board of Directors of
Indivior PLC until his resignation in May 2016. Rupert Bondy, the
Group's General Counsel also sat on the Board of Directors of
Indivior PLC, prior to his resignation in September 2016 and
commencing employment with RB Group plc in January 2017.
Other
The Group has related party relationships with its directors and
key management personnel and pension schemes. There are no further
related party transactions.
17. Seasonality
Demand for the majority of the Group's products is not subject
to significant seasonal fluctuations. Some health and pest control
products do exhibit seasonal fluctuations. The intensity of, in
particular, the influenza season can vary from year to year with a
corresponding influence on the Group's performance.
18. Post Balance Sheet Events
On 19 July 2017, the Group announced that it had agreed to sell
its Food business, including the French's, Frank's RedHot and
Cattlemen's brands, to McCormick & Company Inc., for cash
consideration of approximately $4.2 billion (GBP3.2 billion).
Tiger's Milk, a nutritional bar brand, will also be sold as part of
the transaction.
This announcement follows a comprehensive strategic review of
our Food business and the completion of a highly competitive sale
process. Completion is expected in Q3 2017.
Statement of Directors' Responsibilities
The Directors confirm that, to the best of their knowledge,
these Half Year Condensed Financial Statements have been prepared
in accordance with International Accounting Standard 34 Interim
Financial Reporting as adopted by the European Union and as issued
by the International Accounting Standards Board, and that the
interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the Half Year Condensed
Financial Statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related party transactions in the first six months
of the financial year and any material changes in the related party
transactions described in the last annual report.
-- an indication of important events that have
The Directors of Reckitt Benckiser Group plc are listed in the
Reckitt Benckiser Group plc Annual Report and Financial Statements
for 31 December 2016. A list of current Directors is maintained on
the Reckitt Benckiser Group plc website: www.rb.com.
By order of the Board
Rakesh Kapoor
Chief Executive Officer
Adrian Bellamy
Chairman
23 July 2017
Independent review report to Reckitt Benckiser Group plc
Report on the half year condensed financial statements
Our conclusion
We have reviewed Reckitt Benckiser Group plc's half year
condensed financial statements (the "interim financial statements")
in the half-yearly financial report of Reckitt Benckiser Group plc
for the six month period ended 30 June 2017. Based on our review,
nothing has come to our attention that causes us to believe that
the interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the Disclosure Guidance and Transparency Rules sourcebook of the
United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
the Group Balance Sheet as at 30 June 2017;
the Group Income Statement and the Group Statement of
Comprehensive Income for the period then ended;
the Group Cash Flow Statement for the period then ended;
the Group Statement of Changes in Equity for the period then
ended; and
the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly
financial report have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and as issued by the
International Accounting Standards Board and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and as issued by the
International Accounting Standards Board.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half-yearly financial report, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly financial report in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the half-yearly financial report based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
23 July 2017
a) The maintenance and integrity of the Reckitt Benckiser Group
plc website is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the interim financial
statements since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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